So far we have talked about some of the challenges facing the publishing industry, not least those poised by the digital revolution. This time I want to talk about money: royalty rates and advances.

Royalty Rates.

People often ask how much money a writer makes, per copy sold. The short answer is, not much (and as you will see below, it’s the wrong question). I think it would be useful to show how the money you hand over for your books is divvied up.

Now, these are general figures, but typically, out of a standard $25 hardback, the cash is split like this:

Retailer – 50% – $12.50

Publisher – 37.5% – $9.38

Writer – 12.5% – $3.12 (minus agent’s cut, leaving $2.66)

Don’t forget, the retailer has to pay staff, bills, advertising, storage. The publisher has all of that plus production costs. For mass-market paperbacks, say priced at $10, the split tends to be this:

Retailer – 50% – $5

Publisher – 40% – $4

Writer – 10% – $1 (minus agent’s cut, leaving $0.85)

A lower take per copy, all round, but you would expect to shift a hell of a lot more in paperback than in hardback.

For e-books, things get a little more complicated. Publishers like to say they pay a royalty rate of 25% to their authors. However, this is before the retailer’s cut is deducted (and agent fees). The “net” sum an author receives (before taxes) is 14.9%. Explanation here. That said, an e-book priced at $9.99 breaks down as follows:

Retailer – 30% – $2.99

Publisher – 52.5% – $5.25

Writer – 17.5% – $1.75 (minus agent’s cut leaving $1.49)

The retailer has less overheads (no storage) so the publisher forces a lower cut on them. But the publisher has less overheads too. Way less. After all, they only need to produce the book once, everything else is a copy. But they are still holding on to a stunning 52.5%.

It doesn’t take a genius to figure out why publishers are keen to hold back the digital tide, they make nearly twice as much off a hardback as they do off an e-book (despite the higher percentages). However, their pricing policy of e-books has been controversial. Corporate publishing houses want to keep the price of e-books high to protect the sales of physical books. Most new releases are priced anything between $7.99 and $12.99.

Self-published authors, and small, independent presses can be more flexible in their prices. Indie authors especially have very low overheads, and many are prepared to sell at the lowest possible price ($0.99), or give their stuff away for free, to entice readers.

But for corporate publishers, when retailers (such as Amazon), discount the physical books, it can leave the e-books more expensive than a hardback. Readers, of course, can’t understand why e-books should cost more than paper books, and many have been showing their displeasure by giving one-star reviews to such releases on Amazon, which has to be affecting sales.

So what about self-publishing? Authors who publish their own e-books, not having to deal with publishing houses or agents, get a bigger piece of the pie. With Amazon (and the other retailers are similar), the author keeps 70% of the price, if the e-book is priced between $2.99 and $9.99. If they price it less than $2.99 they keep 35%. And no indie author, unless they are insane, prices their e-book above $9.99.

Either way, that’s a hell of lot more than 14.9%, whichever way you slice it. In a future post, we will talk about what is the most effective pricing strategy for your work, but it might be useful now to run some numbers to contrast corporate and self-publishing royalty rates.

An author with a NY publishing house, and an e-book priced at $9.99 sells 5,000 copies, and the 14.9% royalty rate (after agent’s deductions) gives him $1.49 a copy, leaving him with $7,442.

An indie author, with an e-book priced at $3.99 is getting $2.79 per copy. This means they only need to sell 2,667 copies to make the same money, and at less than half of the cover price. And, of course, many are selling a lot more than that, for stories turned down by NY publishing.

Advances.

But the truth is, most authors published by corporate houses never see any royalties. To understand why, we need to talk a little about advances.

When a writer (or agent) sells a book to a publishing house, they receive an advance on future royalties. Typically, this advance is 50% of the royalties a publishing house estimates it would have paid you from the first print run (remember how many books get pulped). There are many other factors which can affect the size of your advance (such as how many other houses are bidding on the book), but this is a good rule of thumb.

But how much is that in real terms? I have some bad news for you. The average writer, for a debut novel, will receive $5,000 (this average includes small publishing houses and NY publishers, but even if you are just talking about the Big 6 publishers, this average only rises to, maybe, $10,000). A writer with a few novels under his belt (and sales), can start looking at advances of $12,500 (maybe $20,000 with the Big 6).

Obviously, the more copies you sell of your first book, the more competition there will be for your second, pushing the advance higher. But remember, only 20% of books earn out their advance.

The writer doesn’t get all this money up front. Typically, the advance is spread out over three payments, the signing of the publishing contract, the acceptance of the final version of the manuscript, and publication. And as the publication process can take anything up to eighteen months (twelve months minimum is standard), the writer is waiting quite a while before they see all of their cash.

And most books don’t earn out (only around 20% of books do). In other words, they don’t sell enough copies to cover the amount of royalties the publisher would have paid out without an advance. Now, it’s important to point out that this doesn’t mean the publisher has lost money on the book, but they are not making a bunch either. Industry estimates suggest that out of every five books, one makes a profit, two break even, and two lose money.

Because of the returns policy booksellers can take advantage of, your book doesn’t have much time to convince your publisher that it can be the one out of five that will make them money. Some booksellers start returning books after one month if it starts to look like they have ordered too many. They only have limited spots on the shelves, and storage costs money, so the temptation is always high to send it back, get a refund, and stock up with something that might sell better.

So that advance check (or three checks), is all the money that most authors are going to see for that book. Ever.

However, if you publish your own book online, there is no pressure to remove it from sale, because there are an infinite amount of spots. There is no reason why you can’t have your entire back-list on sale, all the time, making you money.

All your costs are at the start, and can be kept to a minimum. Everything after that is profit. Sure, you don’t get an advance, but what’s a one-off payment versus getting paid forever?

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About David Gaughran

David is Irish and lives in Dublin, where it rains every day and conversation is a sport. He writes historical adventures and has helped thousands of authors to self-publish through his workshops, books, and this here blog.

If you want more figures like that, Nathan Bransford, Joe Konrath and Dean Wesley Smith regularly run the numbers – links to their blogs are on the right hand side of the page. Thanks for reading, Dave.